Investment Memo: 3DOS v1.0
Jan 3, 2024
Memo date: Oct 25th, 2022
Author(s): Joseph Argiro , jargiro@ironkeycapital.com
https://drive.google.com/file/d/15CEQSFMr-JpMCxZcVQn8xmEiS80JDS2V/view?usp=sharing
Company: 3DOS is a marketplace for designers, manufacturers, and businesses looking for a turn-key 3d printing solution. The company enables anyone to upload a design, receive
royalties, and have it made anywhere in the world.
Their software platform reduces the cost to on-demand manufacture by up to 96% by providing the software layer to connect 3d printing machines to consumers and designers worldwide.
The company has signed key partnerships with Ozzy Osbourne, Global Merchandising and manufactured.com. It will leverage its existing network of 180,000+ designers and 55,000 3D printers to bootstrap adoption.
The company is backed by notable investors and advisors including Vulcan Capital(Paul Allen), xCEO of Docusign, CTO of Salesforce, and a LinkedIn co-founder.
Reference materials: Pitch deck (here), data room (here)
Reasons to believe:
1. Real world networks and infrastructure can be built by incentivizing people with digital tokens i.e. proof of physical work thesis
2. Marketplace business model is now permeating various physical products sectors that were previously resistant to digital transformation. The 3d printing process is fragmented, requires multiple manual touchpoints, and is ripe for disruption. There is currently no platform or software solution to:
- As a designer: Monetize 3d printing design work in an effortless way
- As a business: Find a 3d printer near you and/or a designer to spin up a merchandising effort
3. Team has built multiple businesses in additive manufacturing space, and has an existing network of designers and 3d printers
Risk Factors:
1. Traction - It is unclear when 3DOS will begin to generate revenue. There is integration risk of porting the existing network of designers to the new platform solution
2. GTM strategy - how are they acquiring new(outside) designers and businesses to use the platform? How will they incentivize user adoption?
Market:
The global on-demand manufacturing market is $12 Trillion and growing at 20% per year. The 3d printing market size is approximately $12.6B with the USA occupying roughly half($6.7B).
About 2.2 million 3D printer units were shipped worldwide in 2021 and shipments are expected to reach 21.5 million units by 2030. The average lifespan of a 3d printer is 5-10 years.
2.2M units / 5 years = .44M units operational ~ assume 10% are damaged, unused, or retired .4M operational units x used 100 times / year x $ 7500 avg order size = $300B in Annual revenue. Assume 3DOS takes 5% of the market: 300B x .5% = $15 Billion
$15B @ 20% take rate = $3B Serviceable Obtainable Market(SOM)
Persistent inflation continues to drive the cost to manufacture higher. Pandemic induced supply chain inefficiencies continue to lengthen production times. Local 3D printing solutions offer an attractive alternative to businesses that are reliant on overseas manufacturing.
The graph below shows how countries are beginning to adopt 3D printing. 3DOS will help accelerate this trend by making 3d printers more accessible and cost effective.
GTM:
3DOS will penetrate the 3d printing market first, and then expand to incorporate more advanced types of additive manufacturing.
3DOS will go to market in 4 different channels:
1) Tap into the users of its existing portfolio of additive manufacturing businesses
2) Leverage 3d print merchandising partnerships with high value, high visibility, high margin products to create awareness and drive demand
a) Exclusive 2 year NFT 3D print license with world’s largest entertainment merchandise manufacturer
b) Currently running pilots with antefame.com, manufactured.com
c) *Confidential* in negotiations with Caterpillar, HP 3D printing
3) Outbound and inside sales: leverage existing sales force in US and EU
4) Brand & Influencer led
a) Ozzy Osbourne merchandise will feature 3DOS as exclusive partner
Defensibility:
Proprietary Technology:
1) 3D manufactured parts can now be proven authentic which will drive adoption of localized
manufacturing methods
2) Designers will be able to easily monetize their work via 3DOS’s proprietary NFT licensing
technology
Scarce Assets and Knowledge:
3) 3DOS has an existing database of 9M+ 3d printing designs
4) Network of 55,000 3d printers and 180,000 designers
Once 3DOS achieves critical mass, the platform will be highly defensible given the current manual touchpoints and complexity of the 3d printing value chain.
Key Competitors: 3DOS focuses on allowing designers to directly monetize their creations
how do designers get compensated today?
- They don’t, because there is no way to protect royalties and IP
- they are high paid employees at big manufacturing companies
How is this differentiated for a 3D printer owner?
- You can plug in a 3d printer and immediately start receiving orders
- 3D printing manufacturers like GKN Forecast 3D, have 36 HP 3d printers, and they have to spend like 20-35% of their budget minimum to acquire clients and run 3d printing jobs on their machines. Taking orders is hell, and very old fashion, phone calls, spending 20k a month on google ads, tradeshows, etc.
All of these competitors below are publicly traded incumbents; there is very little startup competition. 3DOS is an acquisition target.
● 3dhubs.com acquired for $280m by protolabs
● thomasnet.com acquired for $300M by xometry
● rtfkt.com acquired by NIKE for undisclosed amount
Funding: Current: $2M @ $10 MN post money SAFE with 15% discount
● $550k raised(30% committed)
The current $10M dollar valuation will change to $20M valuation(raising $5M) on a start engine campaign in January 2023.
Team: CEO and CTO are subject matter experts in additive manufacturing. They have already built 3 existing businesses in this market over the last 10 years. I would like to see them add to their C-suite with a CMO and/or COO. The founders invented the world's first 3D printing operating system with 200k+ users, 2.8M+ parts, 9M+ CAD designs, across 120+ countries with customers like John Deere, Google, MIT, Harvard, CalTech, Berkeley, Bosch, the British Army, US Navy, US Air Force, and NASA.
Investor FAQ
1. Who would you consider your biggest competitor?
● Protolabs & Xometry
● rtfkt.com acquired by NIKE (physical to digital market validation)
● Most competitors do not cater to the monetization and IP needs of designers
2. What insight can you share in terms of whether the market will adopt a solution like this?
● Our existing portfolio of additive manufacturing software solutions experiences near 0% churn rate of users
● This is indication of sticky customer behavior once we are able to onboard users to the platform
3. What pain point are you solving for?
● Example: Designing, manufacturing and selling an Iphone case
○ The user must find an overseas manufacturer, and negotiate a deal
○ Then, they must ship the parts to the US, only to be reshipped out to sellers on Amazon
○ 3DOS enables this process to occur all in 1 click
3. How does the process work today for designers, 3d printers, manufacturers?
● “For example, engineers in Stanley Black and Decker, have issues submitting jobs, and getting things 3d printed internally, and it takes very long time internally and externally. The iterations take a long time to happen inside the company which slows down innovation, and then once they finally have a prototype or even end use product, to take that into production is very difficult. Latency and instant access is killing innovation. It's why our first product 3DPrinterOS was so successful in reducing the latency inside companies, universities, where anyone can upload a design and get it printed inside their company or campus. Now with 3DOS, with one click, we want to break through the wall and let companies get things made on-demand, anywhere in the world, but you need IP and Royalty protection for that.”
4. Why would they adopt this?
● “End of life spare parts are a big problem. And they are looking at additive and on demand. Companies like Global Merchandising, which does products for Ozzy, 50cent, etc. they want to track their royalties and customers want to ensure it's an authentic product, whether it's Fan Merchandise, or serious aerospace parts that go into airplanes.”
5. What problem are you solving?
● Companies are plagued with inventory complexity and costs
● Look at Nike, they're stock dropped by 9% due to inventory issues.
https://www.marketwatch.com/story/nike-shares-drop-as-analysts-flag-rising-inventory issues-11664531406
● They are also getting nailed, with the cost to store products that aren't selling. https://www.supplychaindive.com/news/nike-clearing-excess-inventory-holiday-season /633138/
● We are in talks with NIke scheduling for next week! They are starting to sell limited run merch via NFTs RTFKT, they bought them for like 300M recently .
6. What are their incentives to remain on the platform?
● Costs, Easy of use, speed, protecting royalties. We are experienced in this, we have less than a 2% attrition rate on 3dprinteros. It's like Amazon, once you put your products on there, you really don't want to take them off. It's easy to distribute, track, and customers to order.
● IDEALLY we would like to see a cost ($) analysis of how this makes designers more money vs. the existing solutions.
● For example, everytime a company needs to produce another batch of millions of end of life parts for equipment like caterpillar tractors or john deere equipment, that's out in the field, they have to spend 20-50, sometimes 100million to produce and store all those parts. It's a massive problem in the industry, and all those parts are then stored in warehousing.
● https://www.supplychaindive.com/news/nike-clearing-excess-inventory-holiday-season/633138/
6. What do designers do today to monetize their work?
● Massive barrier to entry, only the big boys can play. Just like before youtube, if you wanted to run your own CNN channel, you would have had to spend millions or billions of dollars to get on air. Today, anyone can create a youtube channel, and have more views than all the news channels combined. What Youtube did for video creators of the world, 3DOS will do for the material creators of the world. Anyone can take a 5 minute cad design class on youtube, and be inventing and selling the next big thing, innovative door handle, medical clamp, in hours.
7. What do manufacturers do today?
● Let's start industrial 3d printing, as this is one type of manufacturing method that we will start with, and of course we will move up to other technologies like CNC, Waterjet, and ultimately full assembly. `
● 3D printing manufacturers like GKN Forecast 3D, have 36 HP 3d printers, and they have to spend like 20-35% of their budget minimum to acquire clients and run 3d printing jobs on their machines. Taking orders is hell, and very old fashion, phone calls, spending 20k a month on google ads, tradeshows, etc.
● The future state is machines broadcast their capacity, and parts go directly to the path of least resistance, capacity is automatically load balanced, people buying these machines instantly start to make money.
8. What do buyers do today?
● Most people don't even design, they just buy something made in china, put a sticker on it, and ship it out. The cost to get something injection molded, and the cost to purchase that first batch will cost you like 50-100k 1/2M minimum. Then what. What if the product you thought would sell, actually doesn't. You're dead, you'll never try another idea again.
● 3DOS smashed the barrier of entry into selling products. If it's not purchased, it's not made.
9. Can you give another example besides the iphone case example below?
● Example: Designing, manufacturing and selling an Iphone case
○ The user must find an overseas manufacturer, and negotiate a deal
○ Then, they must ship the parts to the US, only to be reshipped out to sellers on Amazon ○ 3DOS enables this process to occur all in 1 click
Yes 2 Major Use Cases:
1) Smashing the barrier of Entry for Everyone ! People have Millions of ideas they think they can sell, we charge $10/design like buying a domain name. Some will work, many will not, but $10 to try an idea is much less than paying millions
2) For Big companies, decentralizing, and onshoring inventory, and manufacturing. As manufacturing decentralizes, they NEED a way to protect those royalties, and having everything made in one place and put in expensive inventories for years, cost way too much, much more than making it on demand. Companies need to support their end of life parts for years, and if they don't provide an easy way for their customers to simply click through a catalog and have it made, they will fall victim to the counterfeit market.
If you make it easy, and affordable for your customers to purchase directly from you, they will do it. This is what iTunes proved, after pulling away market share from Napster. People didn't want to purchase the entire CD, just one song, and they want it to be easy and digital. 3DOS aims to be the netflix of digital parts inventories.
how is IP protected on the platform for designers?
Security comes in many forms.
1) Let's assume everything can be copied, and the blockchain provides a way to prove the provenance of the IP, and also the designer can get royalties. A lot of companies have a very large challenge of counterfeit parts entering the supply chain. ~10% of parts on planes today are counterfeits and there is no good way to catch how they enter the supply chain. With 3DOS, let's say Airbus loads a catalog of on demand parts, and the customer orders the part for from Airbus.com/parts/1232.etc. As soon as they order the part, the smart contract ensure that this part is authorized to be made, at a specific location, and when you pick up that part in your country, that entire chain is tracked on blockchain, for life.
Like an advance Fedex tracking, but including the origins. Now when you receive that on-demand part, you know it's real, and it's made through machines certified to make that part, in certified locations. This is real-time command of control of the process. Now there is a few other layers of security. The blockchain just allows you to pay for parts, OEM's to get royalties, and manufacturers to get paid to make those parts, and everything is tracked on the blockchain.
Now the second half. Actual security of the GCODE ( The exact instructions - the exact dance that machine needs to perform to make that part - the real machine IP code, not STL {basic cad design}.
2) For extremely secure clients -- The GCODE is housed on their private servers, that they control, and only when 3DOS calls an order to be delivered, that server connects securely directly to the industrial 3d printer, and it prints the parts, and removes the GCODE from the machine once done. I am over simplifying the process, and some of these scientific papers we've written explain that. 3DPrinterOS our first product is used in very secure facilities to deliver and connect real-time to the machines and run the gcode or machine code on the machine.
Here are some of our scientific writings on the deeper security aspect of the platform.
https://scholar.google.com/citations?hl=en&user=F07qMn8AAAAJ